Best move for Harrisburg: Extend tax abatement program

The city of Harrisburg has seen its share of struggles through the last several years. With the economic meltdown in the national economy and our own financial crisis, it can be difficult to remain positive about Harrisburg and its future. But as a longstanding member of Harrisburg Young Professionals and a city resident, I remain upbeat.

John C. Whitehead, The Patriot-NewsThe Campus Square building at 1426 N. Third St. in Harrisburg was built with the help of tax abatements.

One important reason to remain upbeat is the current opportunity this week for City Council to help improve and strengthen Harrisburg’s future by passing bill 26, which amends and extends the city’s tax abatement program for another five years.

During the last several months, City Council and the mayor have discussed the future of the city’s 10-year tax abatement program, which will expire at the end of this year. The current program offers a phased-in tax schedule through 10 years on the newly assessed improvements that a homeowner or a commercial owner makes to a property.

By abating future taxes on improvements, the program creates an incentive for property owners to make an investment in their property that they otherwise would not have made without the abatement in place.

Bill 26 amends the current program and lowers it to a seven-year abatement schedule, essentially phasing in the taxes on improvements by about 15 percent per year until after year seven, when the full taxes on the new assessment are required to be paid.

Although less potent than the current program, it would still make some projects, and thus their attendant future tax revenues, feasible. This is the essential point that oftentimes gets lost in the discussion on tax abatement: While it might seem counterintuitive, an abatement program expands the city’s tax base by generating future taxes, including property, business privilege and occupational assessment taxes that otherwise would not have been created without the abatement program in place.

Councilwoman Patty Kim, chair of the economic development committee, has worked with the Thompson administration, other council members, the business community and neighborhood groups to achieve what is a reasonable compromise proposal.

For those who would say the tax abatement program is unnecessary or burdensome for the city, it’s important to consider the following points:

1. The program has worked extremely well and has been a cornerstone of the redevelopment renaissance in Harrisburg during the last several decades. It has helped many homeowners afford homes in the city and has encouraged new residents to move in. Projects such as olde uptown, where I live, would never have been able to attract buyers without a way to lessen the tax burden of these homes. Other outstanding projects such as Riverview Manor, International House Harrisburg, Capital Heights, HACC Midtown and Campus Square would not have been possible without a tax abatement program.

2. The tax abatement program levels the playing field in a city where taxes, utilities and parking costs are all higher than in surrounding suburban areas. We often hear from developers that the “numbers need to work.” In simplest terms, this means that the operating revenues for a project must exceed its operating costs enough to create a return on investment that is higher relative to other investment opportunities.

If it’s less costly to develop and do business in the suburbs, then most developers and firms will continue to develop and do business in the suburbs. The tax abatement program lowers operating costs and encourages investment in the city that otherwise would not have occurred without it.

Michael Wilson

3. Contrary to popular opinion, the tax abatement does not cost anything to the city today. It only abates taxes on future improvements through the span of the abatement period. All taxes on the current land and buildings are paid under the program.

4. The program generates construction and permanent jobs by creating incentives to improve commercial properties that attract and retain businesses in the city.

5. Tax abatement programs are the main incentive used by many cities nationwide for attracting new residents and new investment — cities such as York, Lancaster, Philadelphia, Cincinnati, Washington, D.C., Cleveland and New York City among others have used this program effectively to revitalize their downtowns and residential neighborhoods.

This is a good piece of legislation that is critical to the continued development and revitalization of the city of Harrisburg. It’s also a wonderful opportunity for City Council and the administration to work together to encourage investment and strengthen the future of the city in an uncertain time.

Michael Wilson of Harrisburg is assistant treasurer of the Harrisburg Redevelopment Authority and a former vice president of the Harrisburg Young Professionals.